Although the coronavirus pandemic has created unprecedented challenges for the seniors housing sector, on the valuations side of the equation the future is still promising.
That’s according to a panel of industry experts on an exclusive Seniors Housing Business webinar titled “Market Valuation: How are Seniors Housing Valuations Weathering the Pandemic?”
Moderated by JP LoMonaco, president of appraisal and consulting firm Valuation & Information Group, the panel included Kevin Pascoe, chief investment officer at seniors housing REIT NHI; Rich Lerner, executive vice president at Housing & Healthcare Finance; Chris Kronenberger, managing director of investments with private equity firm Blue Moon Capital Partners; and Ben Firestone, executive managing director at brokerage firm Blueprint Healthcare Real Estate Advisors.
“We’re officially in a recession, but this recession isn’t normal. It wasn’t caused by economic factors, but rather by a healthcare crisis,” said LoMonaco. “We really need to look at the underlying fundamentals of what creates value.”
On the capital side, panelists noted that construction and bridge financing have become scarce. Kronenberger said that private equity investors did initially halt as “all of us were really disrupted, and were taking a wait-and-see approach.” However, the panelists said that investors have largely come back to normal following that early freeze when the pandemic first hit in March.
“We’ve seen the investors come back and the equity come back, while the debt side is a little more cautious,” said Firestone. “Pricing is still relatively attractive to the borrower. It’s a slow creep back on the debt side, and then a more aggressive pursuit of deals on the equity side.”
Lerner added that the government stimulus package in the early weeks of the outbreak gave investors and lenders more confidence to continue operating. With operations impacted so heavily, though, he noted that “there’s definitely more need for recourse than there was before” when it comes to lending terms.
As for REITs, the stock crash in March “turned cost of capital on its head,” according to Pascoe. “It’s starting to inch back up, but we’re nowhere near where we were.”
Looking to the future
Despite the disruption, the panelists all agreed that seniors housing is still a desirable investment. Since it’s a needs-based product, the sector is primed to weather this storm better than some other types of commercial real estate, such as retail or office.
LoMonaco noted that there “was a lot of dry powder coming into this year,” referring to investment funds and the availability of HUD loans.
“In the past few years you’ve seen some of the historic players in private equity seniors housing raising their funds,” said Kronenberger. “That capital is there. It was raised relatively recently, so they don’t have a lot of legacy, pre-covid assets in those funds.”
“When [the pandemic first] happened, everybody thought there would be a lot of duress and was gearing up for it,” he continued. “We haven’t seen it yet.”
Many have looked to The Great Recession as an example, when seniors housing fared very well compared to other sectors. Owners, operators and investors are hoping for a similar case during this recession.
“We’re holding up fairly well compared to other real estate classes,” said Lerner. “When you look at where demand comes from — 83 to 85 year olds — we’re finally on an uptick. The wind is still behind our sails. This is one of the places that you want to have your money. It fills a need that’s there and isn’t going anywhere.”
“The industry is going to have a story to tell coming out of this,” added Pascoe. “The operators are doing a great job keeping their seniors safe. It’s not ideal. No one wants to be here. But the industry will prevail long term.”
To watch the full webinar, click here.
— Jeff Shaw